Understanding a Consumer Proposal

Does a consumer proposal sound like it might work for you? Contact us today to learn more.

With the recent headlines of 46% of Canadians being less than $200 away from financial insolvency, we thought today we would write about consumer proposals.  More specifically, just what is a consumer proposal?  That answer is actually fairly simple.  Through the Bankruptcy and Insolvency Act (“Act”), a consumer proposal is an arrangement negotiated with your creditors, through a Licensed Insolvency Trustee (that’s us!). The Licensed Insolvency Trustee (L.I.T.) takes the role of consumer proposal administrator, and the process allows you to settle your debts for less than you owe, and avoid bankruptcy in the process.  Consumer proposals cover most unsecured debts, including:

  • Credit cards
  • Overdraft
  • Unsecured lines of credit
  • Loans (bank, finance company, payday)
  • Personal loans from family, friends and others
  • Student loans
  • Income tax debt
  • GST

These debts are generally all accepted under a consumer proposal.  If you have secured debts (like a financed/leased vehicle or a house mortgage), they would not form part of your consumer proposal.  These secured creditors have to be dealt with directly.

At this point, I’m sure you’re asking “Why would I want to file a consumer proposal and avoid bankruptcy though?”, and that would be a great question to ask!  There are several advantages to applying for a consumer proposal:

  • You get to keep your assets (not so in bankruptcy)
  • Once a proposal is accepted, your payments will not increase (payments can increase in bankruptcy depending on your income and “surplus income”)
  • The negative effect on your credit score is generally not as bad as a bankruptcy
  • Professional accreditation can be lost claiming bankruptcy, but retained using a consumer proposal (eg. Insurance brokers, corporation directors, licensed real estate brokers)
  • Interest is frozen at the date of the proposal
  • You may still sponsor a family member through the Canadian immigration process (may be hampered if claiming bankruptcy)
  • It’s a legal process so you and your creditors must follow strict rules

There are some great advantages listed here, and the legal protection the process offers helps alleviate your stress as well.  Once you file a consumer proposal, most wage garnishments cease, and collection companies/creditors can no longer contact you for payment.  Taking charge of your debt and stopping the constant phone calls from creditors can allow you to live with a whole lot less stress!  The Act ensures your protection and ensures your repayment plan follows a strict and regulated process.  The L.I.T. will go over your budget with you to ensure you can afford the payment going forward.  From there, the L.I.T. will negotiate a settlement between you and your creditors. You make monthly payments over a term that is usually 5 years (though there is no penalty for paying off the proposal faster). You attend two credit counselling sessions as well, which teach budgeting and credit rebuilding.  Once you make your final consumer proposal payment, your debts are eliminated.

You generally pay more to your creditors in a consumer proposal vs. bankruptcy, but the payments are spread out over a longer term. This usually results in a less stressful process, not only because the payments are spread out over a longer term (and remember, there is no interest), but also because you get to keep your assets.  So if you’re one of the many Canadians struggling with debt, and are looking for a way out, a consumer proposal might be worth your while.  If this sounds like something that might interest you, or you have questions about the process, contact us today!  We’re here to help you, and we love seeing our people get a Freshstart.

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Budgeting made simple with Mint

Last post we looked at Flipp, a handy grocery shopping app that lets you price match with ease.  This week, we are going to look at another app that can help you save money, and stay on budget every month.  Having a budget is a great way to track your spending.  Watching what you spend is the best and easiest way to making sure you are staying on budget, but what is the best way to actually monitor your cash flow?  The truth is any way that works for you is a good way!  If you like to keep your receipts, and enter them all manually on an excel spreadsheet because it works for you, then keep doing that.  Some banks (like Tangerine), will actually break down your spending when you log in to your online banking.   This is great for those visual learners who like to see graphs and diagrams of where there money is going.  If you have a few bank accounts, or different credit cards, and are a visual person, than a budgeting app that helps you keep everything organized in one place may be what you need.

Suggested App: Mint.

Mint is a super handy app that keeps all your financial information in one spot.  You can link credit cards to your profile, or different bank accounts if you have more than one.  The app automatically splits up your spending into different categories, which are completely customizable, to show you exactly where your money is going each month.  It does this all automatically, so once you set a transaction on how you want it to appear in the future, it will do so every time that purchase is made.  You can also set up bill reminders and bill due alerts, so your phone will remind you anytime you have money due.  The app will also notify you if you are getting low on funds, or any unusual spending is happening.  Basically, you will always be “in the know”, when it comes to your finances!

The customizable nature of the app helps you reach your savings goals easier.  Seeing all your ATM fees for other banks in one spot may help you reconsider where you withdraw money the next time.  You might be great at taking money out only from your own ATM, but occasionally go over budget in other areas.  Mint will tell you right away if you have gone over your budget in any category during the month.  Mint tracks your savings each month as well, so you can watch those accounts grow.  The visual interface makes everything easy to understand, and the application is easy to use.  Not only is the app easy to use, but it is safe, made by the makers of Quickbooks and Turbotax.  With all your sensitive data at stake, it’s nice to know the company is used to dealing with such important information all the time.

Mint offers all of this free of charge with no commitment, and the ability to delete your account at any time.  If you are a visual person and you have not been able to find an easy budgeting companion, Mint may be for you!

Are there any other budgeting apps out there you like?  How do you keep track every month?  We would love hear from you about your money savings tips!

Author: Adam Lee

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